Markup vs. Margin: A Contractor's Guide to Pricing Jobs
Markup and profit margin aren't the same thing. Here are the formulas, a conversion table, and how to price jobs so you hit the profit you planned for.
Pricing & ProfitOwnerAdminEstimatorLast verified August 24, 2026
- Who can use this
- Anyone pricing work.
- What the client sees
- Pricing method is internal; clients only see the price you quote.
The short version
- Markup is how much you add to your costs.
- Margin is how much profit you keep out of the sale price.
- A 20% markup is not a 20% margin — it's a 16.7% margin.
The formulas
- Markup = (Price − Cost) ÷ Cost
- Margin = (Price − Cost) ÷ Price
- Markup needed for a target margin = Margin ÷ (1 − Margin)
A worked example
Your true job cost on a bathroom remodel — materials, labor, subs, dump fees, permits, and allocated overhead — is $20,000.
Add a 20% markup and you bill $24,000. Your profit is $4,000, which is $4,000 ÷ $24,000 = 16.7% margin, not 20%.
To actually keep a 20% margin on that job you need to bill $25,000 — a 25% markup. That's $1,000 on one job, and it compounds across every project.
Markup → margin conversion
| Markup on cost | Actual profit margin |
|---|---|
| 10% | 9.1% |
| 15% | 13.0% |
| 20% | 16.7% |
| 25% | 20.0% |
| 30% | 23.1% |
| 35% | 25.9% |
| 40% | 28.6% |
| 50% | 33.3% |
| 67% | 40.0% |
| 100% | 50.0% |
How to price the right number
- Know your true job cost, including labor burden and a fair share of overhead.
- Decide the margin you want to keep, not the markup.
- Convert that margin to a markup and apply it.
- Track actuals against the bid so you learn which work actually pays.
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Verified against the shipped product on August 24, 2026.